Small Island Developing States and their Economic Vulnerabilities
Islands and Small States Institute
Paper presented at an International Symposium on "Small Islands and Sustainable Development" organized by the United Nations University and the National Land Agency of Japan.
Many small island developing states (SIDS) face special
disadvantages associated with small size, insularity, remoteness
and proneness to natural disasters. These factors render the
economies of these states as very vulnerable to forces outside
their control - a condition which sometimes threatens their very
economic viability. Many times the GDP (or GNP) per capita of these
states is such that it conceals this reality.
In this paper the major economic vulnerabilities of faced by
SIDS will be discussed and when possible quantified in the form of
an index. An attempt will also be made to construct an composite
index of vulnerability. The index is not intended as a yardstick of
poverty as such, but as a measurement of the lack of economic
resilience arising from the relative inability of a small island
state to shelter itself from forces outside its control.
The paper is organized as follows: the section which follows
this introduction gives an outline account of how the idea of
constructing a vulnerability index evolved, and describes the
support that the idea has already obtained in international fora.
The paper then deals with the special disadvantages of SIDS,
since, as just stated, the paper assigns particular importance to
the vulnerabilities of the economies of countries.
The methodology utilized for constructing the vulnerability
index is then described. An attempt is made to compute this index,
using a sample of 114 countries, 26 of which are SIDS.
The final section concludes the study, with some comments on
the weaknesses and benefits of the vulnerability index. This
section also puts forward a number of policy recommendations.
How the idea evolved
The idea of constructing a vulnerability index developed in
international fora during discussions dealing with the
disadvantages faced by island developing countries.
Within the United Nations, the issue of the special problems
faced by island developing countries was first specifically raised
during UNCTAD III in 1972, where the focus of attention was the
disadvantages associated with insularity and remoteness.
Subsequently, other fora within UNCTAD identified additional
disadvantages peculiar to island developing countries. By 1988 a
wide array of such disadvantages were recognized, as evidenced by
a comprehensive document prepared by UNCTAD in preparation for a
meeting of a group of experts on Island Developing Countries, held
in Malta in May 19881.
The deliberations of the Malta meeting led to a United Nations
resolution recognizing that in addition to the general problems
faced by developing countries, island developing countries suffer
additional handicaps arising from the interplay of such factors as
smallness, remoteness, geographical dispersion, vulnerability to
natural disasters and a highly limited internal market2.
Up to 1990, however, there was no attempt to present the
disadvantages faced by island developing countries into a composite
index to serve as a yardstick that could measure the degree of
overall vulnerability of these countries.
The construction of such an index was first formally proposed
by the Maltese Ambassador to the United Nations in June 26, 1990,
during the meeting of Government Experts of Island Developing
Countries and Donor Countries and Organizations, held under the
auspices of UNCTAD. In his speech, the Maltese Ambassador suggested
that a vulnerability index be constructed, stating, inter alia,
that such an index "is important because it reiterates that the per
capita GDP of Island Developing Countries is not by itself an
adequate measurement of the level of development of island
developing countries as it does not reflect the structural and
institutional weaknesses and the several handicaps facing Island
The issue was again raised and discussed at some length during
the International Conference of Islands and Small States, held in
Malta on 23-25 May 1991, under the auspices of the Foundation for
International Studies at the University of Malta. In its final
statement, the conference resolved "to construct a vulnerability
index which could be used to supplement GDP per capita index for
the purpose of accounting for the special problems associated with
small size" and "to explore ways and means to have the United
Nations and other international institutions consider such an index
for assessing the need for aid to small countries."
Subsequently UNCTAD engaged the present author to prepare a
paper on the construction of a vulnerability index - a paper
(Briguglio, 1992) which was one of the main documents discussed
during a meeting of a Group of Experts on Island Developing
Countries, held in Geneva on 14-15 July 1992.
Finally, the General Assembly, at its 47th session, resolved
to convene a global conference on the sustainable development of
small island developing states (A/Res/47/189 of 10 March 1993). The
Programme of Action of the global conference, held in Barbados in
April 1994, contained a section (paragraphs 113 and 114)
recommending that a Vulnerability Index be constructed.
The special disadvantages of SIDS
In this section a brief account of the most important
vulnerabilities of SIDS are given. These disadvantages are
classified under five headings, namely: (a) small size; (b)
remoteness and insularity; (c) disaster proneness; (d)
environmental fragility; and (e) other factors.
(a) Small Size
The size of a country can be measured in terms of its
population, its land area or its gross national product. Some
studies prefer to use population as an index of size, while others
take a composite index of the three variables3. As their name
implies, smallness is a characteristic of SIDS, but some of these
are extremely small, and, as a result, as we shall attempt to show,
face severe constraints in this regard.
Small size is economically disadvantageous for a number of
reasons, including the following:
A related problem is that many government functions tend to
be very expensive per capita when the population is small, due
to the fact that certain expenses are not divisible in
proportion to the number of users. For example, overseas
diplomatic missions of small islands states are often
undermanned, and many such states are represented by roving
- Limited natural resource endowments and high import content.
Small size often implies poor natural resource endowment and
low inter-industry linkages, which result in a relatively
high import content in relation to GDP (see Briguglio 1993,
Appendix 4). This makes the economy highly dependent on
foreign exchange earnings.
- Limitations on import substitution possibilities. The small
size of a domestic market severely limits import
substitution possibilities (Worrell, 1992. p.910). In many
SIDS where import substitution policies were adopted, the
end result tended to be a protected economic environment,
with inferior quality products, higher prices and a
parallel market in nondomestically produced goods.
- Small domestic market and dependence of export markets. A
small domestic market and the need for a relatively large
amount of foreign exchange to pay for the large import
bill, gives rise to a relatively high dependence on exports
(see Briguglio, 1993, Appendix 5) and therefore on economic
conditions in the rest of the world.
- Dependence on a narrow range of products. In many cases,
small size restricts the country's ability to diversify its
exports, and this renders the country as dependent on a
very narrow range of goods and services (see Briguglio,
1993, Appendix 6). This carries with it the disadvantage
associated with having too many eggs in one basket, and
intensifies the problems associated with dependence on
- Limited ability to influence domestic prices. SIDS have
negligible control on the prices of the products they
export and import. All developing countries are to an
extent price takers, but SIDS tend to be price takers to a
much higher degree due to the relative very small volume of
trade in relation to the world markets in products they
import and export.
- Limited ability to exploit economies of scale. Small size
renders it difficult for SIDS to exploit the advantages of
economies of scale, mostly due to indivisibilities and
limited scope for specialization. In turn this gives rise
to, amongst other things, high per unit costs of
production, high costs of infrastructural construction and
utilization per capita, high per unit costs of training
specialized manpower, and a high degree of dependence on
imported technologies, since small size inhibits the
development of endogenous technology.
- Limitations on domestic competition. Domestic competition
tends to be curtailed in small economies due to the fact
that small size does not support a large number of firms
producing a similar product. This generates a tendency
towards oligopolistic and monopolistic organization.
- Problems of public administration4. Small size creates
problems associated with public administration the most
important of which is probably a small manpower resource
base from which to draw experienced and efficient
administrators. Very often specialists can only be trained
overseas in larger countries, without a guarantee that
their services will be needed on their return. For this
reason, many specialists originating from SIDS decide
emigrate to larger countries where their services are
better utilized and where remuneration for their services is
better. One outcome of this is that SIDS have to rely on larger
states, generally the ex-colonizing country, for certain
specialized aspects of public administration.
Another public administration problem in SIDS is that people
know each other well, and are often related to each other. This
tends to work against impartiality and efficiency in the civil
service and against a merit-based recruitment and promotions
(b) Insularity and Remoteness
All islands are by definition insular, but not all islands are
situated in remote areas. Insularity and remoteness give rise to
similar problems associated with transport and communication, and
these two factors are considered together here.
- High per unit transport. It is to be expected that
transport costs associated with the international trade of
SIDS tend to be relatively higher per unit of export than
in other countries. The main reason for this is that
islands are separated by sea and are therefore constrained
to use air and sea transport only for their imports and
exports. Land transport is of course out of the question,
and this reduces the options available for the movement of
goods and of people.
Apart from this, a small economy tends to require relatively
small and fragmented cargoes, leading to high per unit costs.
Moreover, the small size of SIDS often excluded them from the
major sea and air transport routes, which give rise to delays
and constrains the ability of these states to exploit the
advantages of modern and technologically advanced means of transport.
- Uncertainties of supply. Apart for high per unit cost of
transport, insularity and remoteness from the main commercial
centres may also give rise to additional problems such as
time delays and unreliability in transport services. These
create uncertainties in the provision of industrial supplies.
These disadvantages are more intense for islands that are
archipelagic and dispersed over a wide area.
- Large Stocks. An additional problem is that when transport
is not frequent and/or regular, enterprises in islands find
it difficult to meet sudden changes in demand, unless they
keep large stocks. This implies additional cost of
production, associated with tied up capital, rent of
warehousing and wages of storekeepers.
(c) Proneness to Natural Disasters
Many islands experience natural disasters caused by cyclones
(hurricanes or typhoons), earthquakes, landslides and volcanic
eruptions. Although natural disasters also occur in non-island
countries, the impact of a natural disaster on an island economy
where disasters occur is expected to be relatively larger in terms
of damage per unit of area and costs per capita, due to the small
size of the country.
In some instances natural disasters threaten the very survival of
some small islands. Some of the effects of natural disasters on
small economies include the devastation of the agricultural sector,
the wiping out of entire village settlements, the disruption of a
high proportion of communication services and injury or death of a
relatively high percentage of inhabitants.
(d) Environmental Factors
As is well know, national accounts statistics do not normally
take into consideration environmental degradation and resource
depletion. In other words, GNP statistics may give a picture of
growth and development, whereas in reality a country might be
undergoing a process of long-term unsustainability and degradation.
Environmental problems are likely to be particularly intense in
(e) Other characteristics of SIDS
- Pressures arising from economic development. The pressure
on the environment arising from the process of economic
development in SIDS tends to be much higher than in other
countries. In many islands, increased demand for
residential housing and industrial production has given
rise to a fast depletion of agricultural land. Small
islands also experience intense use of the coastal zone for
tourism and marine related activities. They also tend to
generate a relatively large amount of waste.
These problems are of course also faced by countries
undergoing a process of economic development, but their effect
on SIDS is likely to be much stronger due to the small size of
The process of economic development also brings with it an
increased demand for resources, some of which are
non-renewable. Some SIDS have experienced depletion or near
depletion of such natural resources. This happened for example
in the case of Fiji (gold), Vanuatu (manganese), Haiti
(bauxite), Nauru (phosphate) and Trinidad and Tobago (oil).
- Environmental Characteristics of SIDS. Apart from the
pressures of economic development, SIDS also face problems
associated with their geographical and natural
They tend to have a unique and very fragile ecosystem. The
uniqueness, which is an outcome of the insularity of SIDS,
renders such islands as important contributors to global
diversity. The fragility is the result of the low level of
resistance of SIDS to outside influences, endangering bird and
other endemic species of flora and fauna.
A major environmental problem associated with islands is
global warming and rising sea level. Many SIDS, especially the
low-lying coral atoll ones, are faced with the prospect of
proportionately large land losses as a result of these changes.
Another problem in this regard relates to erosion. SIDS have
a relatively large coastline in relation to the land-mass. Thus
a relatively large proportion of land in such islands is
exposed to sea-waves and winds, giving rise to a relatively
high degree of erosion of land and soil.
Other important characteristics of SIDS include dependence on
foreign sources of finance and demographic changes.
- Dependence of Foreign Sources of Finance. Some islands have
an excessive degree of dependence on foreign sources of
finance including remittance from emigrants5 and development
assistance6 from donor countries. This reality is especially
present in the SIDS in the Pacific region (Bertram, 1993
and Connell, 1988, pp. 27-28). These inflows of transfers
from abroad have permitted many SIDS to attain high
standards of living and to offset trade deficits.
- Demographic Factors. Demographic changes in small islands
are sometimes very pronounced due to out-migration from the
country, or in the case of multi-island states, emigration
from one island to another caused by attraction of urban
centres in terms of jobs and education.
These movements sometimes give rise to brain and skill drains
and to social upheavals. This happens also in islands which are
economically successful, due to limited opportunities for
specialization in such islands.
Constructing a Vulnerability Index
In this section an attempt shall be made to construct an index of
economic vulnerability. We have included as many countries as
possible, and not just small island states, for the sake of
The variables chosen are economic ones, since the index attempts
to measure economic vulnerability. However, they do not include GDP
(or GNP) per capita and other variables which have a causal
relation to it. Since the issue we wish to investigate here is not
related to poverty or underdevelopment, but to vulnerability,
fragility and lack of resilience in the face of outside forces. In
other words, we are implicitly arguing that a country could be
economically vulnerable, independent of its stage of development.
As stated, the index to be constructed in this study includes
economic indicators only. It therefore leaves out environmental
ones. Apart from the fact that this study focuses on economic
vulnerabilities, there is the added reason that there are serious
difficulties in obtaining environmental data which could be
meaningfully indexed and ranked for international comparative
purposes8. The non-inclusion of environmental indicators may be
considered an important deficiency, because this leaves out an
important source of vulnerability of small islands. It should be
stressed here that the absence of environmental indicators is not
an admission that environmental fragility is not important - on the
contrary, the present author believes that this is an important
consideration in so far as sustainable development of SIDS is
(a) The Basic Criteria
The basic criteria that were adopted to construct the
vulnerability index were the following three:
As we shall show, the vulnerability index that is presented in
this paper meets, albeit somewhat imperfectly, these three
- Simplicity. The index should not be too complicated to
construct. This necessitates that the data must be relatively
easy to obtain and to process. Preferably it should be
collected as a matter of routine in line with the information
required for the economic management of a country.
- Ease of comprehension. This requires that the overall composite
index must have an intuitive meaning, that it produces
plausible results and that it summarizes the many facets of the
individual variables that it purports to represent.
- Suitability for international comparisons. The index should
lend itself for international comparisons. An index of the type
we are presenting in this paper, would of course be useless if
it cannot be used for this purpose. Hence it must be based on
variables which are measured in a homogenous manner
(b) The Variables
Three variables which appear to be obvious candidates for
inclusion in the vulnerability index are: (1) exposure to foreign
economic conditions; (2) insularity and remoteness; and (3)
proneness to natural disasters. It is hypothesized that the higher
the incidence of these three variables in a given country, the
higher is the degree of vulnerability in the same country,
everything else, including GDP per capita, remaining constant.
(i) Exposure to Foreign Economic Conditions
The degree of exposure to foreign economic conditions is related to
economic vulnerability because the higher the degree of such
exposure the more will developments within the country become
determined by foreign economic conditions, thereby decreasing the
country's capacity to control its own destiny.
Various variables may capture this exposure, including:
We shall refer to these variables as indices of exposure to
foreign economic conditions. For the purpose of the index we have
taken the first variable, measured as the ratio of exports and
imports to GDP, as an indicator of economic exposure. The reason
for this is that: (a) data on the second variable is only available
for a limited number of countries, and its inclusion would have
severely reduced the number of countries in the index9; and (b) it
is not possible to measure the third and fourth variables. In all
probability however, these variables are closely correlated with
- the degree to which an economy depends on foreign trade
(exports and imports);
- the degree to which an economy depends on a narrow range of
- the degree to which an economy depends on imported technologies
and imported expertise; and
- the degree to which an economy is a price-taker.
Table 1 gives a summary of the overall tendency of SIDS'
dependence on exports and imports. More detailed data appear in
Appendix 2a of this study.
Table 1 shows that the highest ratios of exports and imports
pertain to SIDS whereas developed countries have the lowest ratios.
As already argued, the index of economic exposure is not intended
to measure poverty or underdevelopment. As a matter of fact
correlation of this index with GDP per capita was not found to be
statistically significant. In other words, countries with a high
GDP per capita, as well as those with a low GDP per capita could
have a high index of exposure to what happens in the rest of the
(ii) Remoteness and Insularity
The disadvantages associated with remoteness and insularity have
been discussed. As stated, not all islands are remote, but
remoteness renders the problems of insularity more pronounced.
Remoteness and insularity are associated with vulnerability
because, amongst other things, they introduce uncertainties, delays
and cost indivisibilities in foreign trade.
The problem with remoteness and insularity is that these
variables cannot be measured directly in a meaningful way. For
example, it may be suggested that remoteness can be measured by
taking the number of kilometres from a main commercial centre, the
nearest island or the nearest continent. An isolation index of this
type has been compiled by Dahl (see UNEP 1991, p.495).
This index might however be misleading for measuring remoteness
for economic purposes, because the nearest island or continent, or
the nearest main commercial centre may not be the ones with which
the country in question has its most important trade relations. Let
us take the case of Malta by way of example. It is not distant from
the continent, since Sicily is less than 100 kilometres north. Yet,
air transport to London, which is thousands of kilometres away is
more frequent and more consistent than it is to Sicily. Also,
Maltese trade with the U.K. and Germany was almost twice that with
nearby Italy during the past few years.
In the case of certain islands, a relatively large proportion of
international trade is directed to and from their ex-colonizing
powers, even though other centres of commercial activity could be
more proximate. In other words measuring remoteness by taking
distance in kilometres may convey the wrong sort of information
regarding insularity and remoteness, for economic purposes.
We have identified two variables which may reflect the effects of
remoteness. These are the ratios of FOE/CIF factor and the other is
the ratio of transport and freight costs to exports proceeds. We
consider the second as being more meaningful, and we shall utilize
it in our vulnerability index. Transport and freight ratios are
given in Appendix 2b.
As was the case with the economic exposure variables, the
correlation coefficient between relative transport costs and GDP
per capita indicates that GDP per capita does not capture the
effect of remoteness11.
Table 2, which summarizes the data given in Appendix 2b, shows
that SIDS tend to have a higher ratio of expenditure on transport
than non-island countries.
It should be stated, however, that this index needs to be refined
considerably to improve its direct relationship with insularity and
remoteness, since as it stands, it may reflect factors not
necessarily connected with this variable. This point will be
briefly discussed again in the concluding segment.
(iii) Disaster Proneness
Disaster proneness is associated with economic vulnerability
because, among other things, disasters create additional costs and
divert resources away from directly productive activities. In small
islands, they may disrupt the whole economy.
The data for constructing the index of disaster proneness was
derived from a 1990 report published by UNDRO which contains a
wealth of information in this regard. Disaster damage is calculated
as money damage in relation to the GDP of the country concerned.
Non-significant disasters were excluded, a significant disaster
being defined as one which has an impact of at least 1% of GDP. The
period covered by the report is 1970 to 1989 and the disasters
covered included droughts, floods, earthquakes, hurricanes,
cyclones, storms, typhoons, fire, volcanic eruptions, famine,
landslide, accident, power shortage, epidemic and civil strife.
The UNDRO report presents a total index, which gives the
estimated damage over a period of twenty years and an average
index, which presents data on the damage per disaster. We have
taken the total index, since this covers a sufficiently long period
to merit the term "proneness".
It is admitted that the choice of a twenty year period is
subjective, but so would be other choices. We thought it desirable
to take a long-run view of disaster proneness. An alternative
procedure is to assign declining weights to disaster damage of
previous years according to the distance from the current year.
We have refined the index somewhat, making it more directly
related to natural disaster proneness, by excluding disasters of a
political nature. For this reason we have excluded damage caused by
We have tested the correlation of this index with GDP per capita,
and again found no statistically significant correlation between
the two variables12.
Table 3, which summarizes the more detailed data of Appendix 2c,
shows that, according to this index, SIDS tend to be more disaster
prone than other countries.
(iv) Other Variables
There are variables other than size, remoteness and disaster
proneness that may be associated with vulnerability. Three such
variables are environmental fragility, dependence on foreign
sources of finance and demographic changes.
However, we have decided not to include these three variables on
the following grounds:
(c) Standardizing the variables
- Non-measurability. This applies to environmental fragility.
Although some environment indices exist (see for example UNEP
1991), the data they convey is not suitable for the purpose of our
index, as was explained above.
- Relation with GNP per capita. This applies to indices related to
dependence on international financial transfers (remittances and
international aid) and to outward migration. These tend to be
related to the economic performance of the country concerned. These
were left out because, as stated above, the object of the
vulnerability index is not to measure economic performance, but
economic fragility in the face of external forces.
The standardization procedure is required to render the index
insensitive to the scale of measurement used, since the variables
which compose the index are measured in different units13.
The standardization method which is used in this study is based
on the following formula:
Vij = (Xij - Min Xi) i=1,2,3 j=1,2,...114.
(Max Xi - Min Xi)
Vij stands for the degree of vulnerability arising from the ith
variable for country j.
Xij stands for the value of the ith variable included in the
vulnerability index, for country j.
Max Xi and Min Xi stand for the maximum and minimum value of the
ith variable for all countries in the index.
If a given country's vulnerability variable takes a value of Xij
equal to the minimum value of that same variable, the value for Vij
would be zero, and this would correspond to minimum vulnerability
arising from that same variable.
On the other hand, the greater the gap between the reading of a
particular country's vulnerability variable and the minimum value
of that same variable, the higher will be the value of Vij, so that
the country with the maximum value would have a vulnerability score
of 1 with respect to that variable.
In this manner, the index would take a value of between 0 and 1.
(i) Weighting the Variables for the Composite Index
A composite index, as its name implies, is some sort of average
of a number of sub-indices. In our case, we have three sub-indices
which represent different dimensions of vulnerability and which are
to be combined together to yield a single valued indicator.
The simplest method of combining the effect of the sub-indices is
taking a simple average. This would be an equally weighted index.
Such an approach has been used in constructing the Physical Quality
of Life Index (Morris 1979) and the UNDP Human Development Index
An alternative is to use different weights for each variable, on
the assumption that the different variables have a different impact
on vulnerability. Unfortunately, in the case of our index, there is
no way in which such weights can be established on a priori grounds
or on statistical grounds. The best one can do in this case is to
assume different weights and compare the results.
In our case, the sub-indices are uncorrelated, and therefore
significantly different weights are likely to produce different
We have experimented with two sets of weights. The first is an
equally weighted index. The second assigns the following weights to
the sub-indices: 50% to economic exposure, 40% to the transport
index and 10% to the disaster proneness index.
The magnitudes of both sets of weights are essentially arbitrary,
but there is the following reason for the ranking in the second
set. It could be argued that economic exposure is the most
important factor that renders a country economically vulnerable to
forces outside its control, since this variable is related to the
extent to which the country's economic performance is determined by
conditions in the rest of the world. The index of transport cost,
reflecting insularity and remoteness, is also related to economic
vulnerability, in that, among other things, it allows for an
element of uncertainty in foreign trade, but it can be held that
this variable is not as important as economic exposure. Finally
while disaster proneness should be considered in an index of
economic fragility, it could be argued that this is not an
intrinsic economic constraint and it should not therefore be given
as much weight as economic exposure and insularity/ remoteness.
The equally weighted index produced similar, though not identical
results, in that in general SIDS tended to register high
vulnerability scores. The main difference was that countries which
were disaster prone registered higher scores in the equally
weighted index14. The results to be reported below will focus on the
index with the second sets of weights, based on the arguments just
It is pertinent to state here that alternative weighting schemes
would not solve the problem of subjective choice in this regard.
(d) The Vulnerability Index
The ranking of 114 countries according to vulnerability index
using varying weights is given in Appendix 1, which lists the
countries in alphabetical order and in vulnerability rank order.
The scores are summarized in Table 4. This table also gives a
summary of scores of an index which assigns equal weights to the
three sub-indices. As stated, the general tendency that SIDS have
higher vulnerability score is apparent in both indices.
The results shown in Appendix 1 and Table 4 are interesting, and
confirm the assumption that SIDS tend to be more vulnerable than
other groupings of countries. In general, SIDS registered higher
vulnerability scores than developing countries.
As stated elsewhere in this study, the composite index is a form
of average, which hides the effect of the individual sub-indices.
Although separate sub-indices do not have the appeal of a single
composite index giving a single-valued ranking, there is something
to be said in favour of presenting the sub-indices separately.
One reason is that they individually convey useful information.
Another reason is that a composite index, as Hicks and Streeten
(1979) argue, implies some form of trade-off between the variables
composing the index, which have to be met together. Averaging would
conceal, for example, situations where the effect of one variable
cancels out the effect of another. For these reasons we are also
presenting the sub-indices in Appendix 3.
This Appendix shows that SIDS, especially the small ones, tend to
be vulnerable as a result of the three variables, although there a
number of exceptions.
(e) Vulnerability and economic performance
As stated above, the types of vulnerabilities represented in the
index presented in Appendix 1 are not related to the degree of
economic performance. This is confirmed in Table 5 which gives
averages of GDP per capita and of the Human Development Index (for
detailed data see Briguglio, 1993, Appendices 7 and 9) of different
country groups and compares them to the Vulnerability Index. It can
be seen that SIDS do not fare badly in terms of GDP per capita, and
in terms of the Human Development Index. As a matter of fact, their
scores are higher, on average, than those of developing countries
in general. However, on average, these countries are characterized
by a high vulnerability scores.
The question may arise here is to whether or not the data in
Table 5 suggests that the economic fragilities of SIDS are actually
the reason for their relatively high GDP per capita and Human
Development Index. The fact that many SIDS have done relatively
well in terms these indices, has prompted some observers to argue
that being small and insular is not a disadvantage alter all.
This line of argument may of course contain an element of truth,
in that smallness has its advantages, including a high degree of
flexibility in the face of changing circumstances. However the
handicaps and fragilities described above are a reality in many
SIDS, and the success stories of some of them was probably achieved
in spite and not because of their small size and insularity. Unlike
larger states, small ones can never take their viability for
granted, and they are perpetually in a sink or swim situation.
One reason why many SIDS register relatively high GNP per capita
scores could be their strategic importance. Many SIDS are situated
in the sphere of influence of relatively large powers: the U.K. and
the U.S. in the Caribbean region; the EU in the Mediterranean
region; and Australia, New Zealand, Japan and France in the Pacific
area. The interest of these powers in SIDS has given rise to what
may be called "artificial" props to the economy of the islands, in
terms of, among other things (a) relatively large amounts of
transfers and free technical assistance; and (b) preferential
access to the markets of developed countries in industrial and
Because of their intrinsic economic vulnerabilities, many SIDS
may not have survived as independent states in the absence of these
"artificial" props. Furthermore, it could be argued that the
relatively large financial transfers to SIDS may have pushed up
their GDP per capita to levels higher than what one would expect
from countries continually facing the constraints associated with
small size and limited resources.
The relatively high growth rates which many SIDS experienced
during the eighties may also give a misleading picture of the
strength of the economies of these countries. In many instances,
the growth pattern of such countries has been unstable and erratic
(as was the case in many Caribbean Islands, see World Bank, 1992,
p.6) and dependent on preferential access to markets in developed
(f) Vulnerability Adjusted Development Index
An interesting consideration in this regard is the comparison of
the vulnerability ranking and the GDP per capita ranking. For this
purpose we have constructed a simple index which, for ease of
reference and for lack of a better name, we call the "Vulnerability
Adjusted Development Index" (VADI).
This index consists of a simple average of the GDP per capita and
the vulnerability index. The results are given in Appendix 3, where
it can be seen that in the case of most SIDS the vulnerability
index "weights down" the GDP per capita index.
For example, Antigua and Barbuda have a very high vulnerability
score (ranked number 1 in terms of vulnerability among all
countries). At the same time, this country has a relatively high
GDP per capita score (ranked 78, where rank 1 indicates the poorest
country among the 114 included in the table). As a result the VADI
score of Antigua and Barbuda has a lower rank than its GDP per
capita index. Countries like Antigua and Barbuda, which have a GDP
per capita rank higher than their VADI rank are termed countries
with an overrated GDP per capita" for ease of reference.
A list of such countries also appears in Appendix 3. This
appendix gives the magnitude of disparity between the GDP per
capita rank and the VADI rank.
Again here, the results appear to be interesting, since they
indicate that many small states, most of whom are also islands,
have an economy which appears stronger in terms of GDP per capita,
than in terms of a Vulnerability Adjusted Development Index.
(g) Suggestions for Improvement
Composite indices are notorious for the amount of discussion they
provoke, principally because of the subjectivity in their
computation. Normally, the criteria as to which variables are to be
included and weighted are chosen by the compiler. In general one
finds that there are no hard and fast rules for rejecting or
accepting the results. Indices of this type are also sometimes
criticized because they contain errors of measurement.
The Vulnerability Index proposed in this paper can, no doubt, be
criticized on the grounds of subjectivity. Care however has been
taken to base the choice of variables on plausible assumptions as
to what renders an economy vulnerable to forces outside its
control, and to use suitable methods of measurement and weighting,
guided by the simplicity and comprehensibility criteria outlined at
the beginning of Section 4.
(ii) Errors in Measurement
Measurement errors are generally found in indices which attempt
to construct numerical values for variables which are essentially
For example, in the case of the economic exposure index, it is
quite possible for a country to be very economically exposed, but
has not yet developed enough or is not competitive enough to foster
foreign trade. Such errors in measurement may have been the cause
of a number of unexpected, and perhaps implausible, rankings in the
Vulnerability Index. Clearly, this aspect of the index needs to be
investigated at some more depth.
Moreover, certain data are not very easy to procure. The most
difficult task in this regard would seem to be that of obtaining
regular updated data on disaster proneness. The index produced by
UNDRO is an important step in this direction, but it has to be
produced on a yearly basis.
There is also the need for further study to improve the
remoteness index by means of data which measures this variable,
keeping other things constant. The index chosen in the present
study has the merits that it can be very easily obtained from
balance of payments statistics. But it may capture factors which
are not directly related to remoteness, such as monopolistic
practices in the domestic carrier-companies and other market
In this study we have described the most important factors which
render a small island developing state relatively weaker than other
countries in the face of factors outside its control, and we have
proposed a method for constructing an index to measure economic
vulnerability. The index presented in this study has a number of
weaknesses, which have already been highlighted, and which include
three basic ones, namely the subjective criteria on which it is
constructed, the errors in measurement, and the lack of
consideration for environmental vulnerabilities.
In spite of its shortcomings, there are a number of benefits that
may be derived from the index, especially if refined in the manner
indicated above. and computed on an ongoing basis with updated
data. These benefits include the following:
This study has also shown that vulnerability takes many forms and
that SIDS tend to have high scores in this regard, indicating that
these countries tend to be very fragile in the face of forces
outside their control.
- the index can attract attention towards the issue of
vulnerability of certain economies, in particular those of
- it presents a single-value measure of vulnerability based on
meaningful criteria which can be considered by donor
countries and organizations when taking decisions regarding
the allocation of financial aid and technical assistance.
It has also been shown that in many instances, SIDS do not have
a relatively low GDP per capita, conveying the impression of a
relatively strong economy, even when, in reality, their economies
are extremely delicate, being exposed to foreign economic
conditions and to natural disasters, and have additional problems
associated with insularity and remoteness. In other instances, SIDS
are very poor and very vulnerable at the same time, a state of
affairs which deserves immediate attention from the international
It must be emphasized that the high vulnerability scores of SIDS
produced in the vulnerability index should not be construed as a
suggestion that SIDS should be complacent and should not themselves
attempt to mitigate the effects of their vulnerabilities. The
report of the General Secretary of United Nations, relating to
Island Developing Countries (1992, pp.19-23) lists a number of
policy options available to SIDS in this regard.
These include (a) improved flexibility to enhance the countries'
ability to withstand external shocks; (b) improved ability to
compete, through niche filling export strategy, flexible
specialization, enhanced entrepreneurship and economic deregulation
(on this question see also Cole, 1993); (c) institutional changes
for capacity building (in this regard see Ashe et al, 1993); and
(d) regional technical cooperation to reduce certain per unit costs
which tend to be high in a small state. Additional recommendations,
related to environmental vulnerability, are included in UNCED's
Agenda 21, Chapter 17G. These include: (a) the development of
management techniques suitable to the special characteristics of
small islands; (b) the undertaking of appropriate institutional
reforms essential to effective implementation of sustainable
development; and (c) the promotion of environmentally sound
Although, as stated, SIDS should take action to help themselves,
the fact will still remain that these countries tend to have
limited options to cope effectively with their intrinsic economic
and environmental vulnerabilities. The cooperation of the
international community is therefore called for in this regard.
1. See UNCTAD (1988)
2. See "Resolutions adopted on the reports of the second committee"
Meeting 83, Report A/43/915/Add.2 dated 20 December 1988.
3. See Downes (1988) and Jalan (1982), and Briguglio (1993,
4. These arguments are derived from on Jacobs (1989) and Connell
(1988, pp. 4-6).
5. Figures pertaining to these variables are published in UNCTAD
(1991) Table 5.1 and 5.14. These figures would seem to suggest that
SIDS are more dependent on remittances than non-island developing
countries, having on average received 11% of their GNP in
remittances in 1990, compared to 5% of GNP for non-island
developing countries. On this issue see Bertram (1993). On the
other hand, debt statistics would seem to indicate that SIDS tend
to have a relatively lower debt burden than other developing
6. Overseas Development Assistance per capita of population to SIDS
in 1989 was about six times as large as the average for all
developing countries in general (United Nations, 1992, Annex, Table
7. The index does not include all small island developing states,
since data was not available for some of them, including Cuba, Sao
Tome, Solomon Islands, Sao Tome and Principe and Western Samoa were
left out of the index. For the same reason, the index also leaves
out a number of islands which are members of the alliance of small
island states (AOSIS) including the Federated States of Micronesia,
Cook Islands, Marshall Islands, Nauru, Niue and Tuvalu.
8. The measurement of environmental fragility is not an easy task,
especially if these indices are to be utilized for international
comparisons across island and non-island states. A very brave
attempt in this regard was carried out by A.L. Dahl, whose work was
published as an Island Directory (UNEP, 1991). Dahl produces a
number of indices including an index of the richness of the
ecosystem of islands, an index of species richness and an index of
human impact threatening natural areas and endemic species. He uses
these sub-indices to construct two composite indices, namely the
Index of Terrestrial Conservation Importance and the Index of
Marine Conservation Importance, both of which assign higher ratings
to islands with greater ecological complexities and species
diversity and with larger numbers of endangered and threatened
species. Using these indices, Dahl produces a table (page 557),
which lists the most important islands at risk because of their
high conservation importance and the high human impact index. The
principal operational uses of the Dahl indices are related to the
ranking of islands in terms of priorities for terrestrial and
marine conservation action. Dahl's indices are extremely
interesting and very comprehensive but they could not be utilized
for the purpose of the index constructed in this study. The main
reason for this is that Dahl's indices only cover islands, whereas
the index to be constructed in this study covers all types of
countries, since the object of the exercise is to show that small
islands have a higher degree of vulnerability than other countries.
9. UNCTAD's Handbook of International Trade and Development
Statistics (Table 4.5) presents an index measuring export
concentration by means of a formula which takes a value of between
0 and 1, where 1 is maximum concentration of exports. According to
the data in the 1991 issue of the handbook, SIDS in general
registered very high concentration scores averaging 0.845.
Non-island developing countries had an average score of 0.767
whereas developed countries on average registered the relatively
low score of 0.424.
10. The rank correlation coefficient between exports and imports as
a percentage of GDP and GDP per capita of the 114 counties used in
computing the vulnerability index was found to be 0.4.
11. The rank correlation coefficient between GDP per capita and the
transport costs ratio was found to be 0.10.
12. The rank correlation coefficient between GDP per capita and the
disaster proneness index was found to be 0.03.
13. The variables were actually measured in logs to allow for
diminishing marginal effects. When measuring the variables in
absolute terms, one is implicitly assuming that these variables
have a constant marginal effect with regard to vulnerability. An
alternative assumption is that the variables have a diminishing
margin disaster proneness index, for example, the assumption of
diminishing marginal impact would imply that a country twice much
prone to natural disaster as another, is less than twice as
vulnerable, with respect to this variable. This question cannot be
resolved on the basis of objective criteria, but it appears
plausible to assume that as economic exposure, remoteness and
disaster-proneness increase, the vulnerabilities arising from these
variables tend to increase at a diminishing rate. One way of
allowing for diminishing marginal effect of a variable is to
measure it in logarithms - the method used in this study. An
alternative is to measure it in terms of a formula assigning
declining weights to increments of the variable. We have decided to
use logs for this purpose, on the grounds that it is relatively
easy to transform raw data in this manner.
14. The results of an equally weighted vulnerability index are
given in Briguglio (1993). The vulnerability rankings of particular
countries differed somewhat from those shown in the present study,
but the conclusion that SIDS tend to be more economically
vulnerable than other countries also emerged very clearly from the
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